Mumenthaler warns of capital and risk disconnect

Swiss Re CEO Christian Mumenthaler has made a robust defence of the traditional reinsurance model, warning of an increasing separation of capital providers and risk specialists.

Speaking at the official Monte Carlo Rendez-Vous conference, Mumenthaler criticised the view that alternative capital is more efficient than reinsurance capital.

“Fundamentally, technically, mathematically, reinsurance capital is much more effective.”

He added: “There’s a phenomenon that is reminding me of the financial crisis. “We have more and more separation of those who understand the risk and those who provide the capital.”

“I don't think anybody does the full math on this,” he noted.

“There is a risk that a lot of capital is pushed this way or that.”

“In a long-term horizon you could get decoupling. I don’t see a systemic risk here, but I do see a risk of depressing prices.”

Mumenthaler was speaking at a panel discussion with other industry CEOs.

Also on the panel was Scor CEO Denis Kessler, who said there would be no return to a hard market, unless there was a cataclysmic cat event.

Kessler spoke of “extremely limited” rate increases and the influx of third-party capital.

“We wait for the return of the Jedi - the market cycle,” he joked.

“Maybe there is no Jedi.”

His comments set a more negative tone than commentary he made in an interview with this publication before the conference, in which he said he was optimistic that the pricing cycle had turned.

He spoke to The Insurance Insider after the French reinsurer had vehemently rejected an unsolicited EUR8.3bn ($9.6bn).

At the Monte Carlo event, the Scor CEO also remarked that a cyber catastrophe would be the kind of event that had sufficient scale to have an impact on the market. 

“A worldwide cyber attack could be the event that turns the market,” he said.

He said a market turn could only be caused by an unexpected event on the scale of Hurricane Andrew in 1992 or the World Trade Center attack in 2001.

Andrew caused over $500mn of damage to oil platforms before making Florida landfall. At 2017 prices, the total insured losses from the storm would have been $28bn, according to data from Swiss Re.

Marsh & McLennan Companies CEO Dan Glaser was also on the panel. He said that a large scale cyber attack could end some of the current uncertainty about what is covered and what is not covered by cyber insurance.

Glaser said: “The bigger the loss the more likely the industry gets shamed by its fragmented reaction to if it’s covered or if it’s not.”